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Do You Have to Pay Back SBA Loans?

Do You Have to Pay Back SBA Loans?; Do you need to pay back SBA disaster relief loans? Learn all about the terms and conditions of these loans from Lantern by SoFi.
Susan Guillory
Susan GuilloryUpdated July 16, 2021
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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
So you’ve heard a rumor circulating about there being business loans from the Small Business Administration (SBA) that you don’t have to pay back. Could that possibly be true? Before we can answer the question, “do you have to pay back SBA loans?” It's important to understand that there’s more than one type of SBA loan, but there is only one kind that possibly doesn’t have to be repaid. But we’ll get to that.

What is an SBA Loan?

The Small Business Administration backs several types of small business loans, each with its own unique characteristics.
  • 7(a) loans. The 7(a) loans for small businesses are among the most popular options, as they offer up to $5 million at low interest rates and can be used for working capital, to refinance business debt, or to buy furniture, fixtures, or supplies. 
  • CDC/504 loans. SBA’s CDC/504 loans also have a cap of $5 million. They can be used to purchase buildings or land, build new facilities, or buy equipment.
  • Microloans. There are also microloans for businesses who need a smaller amount of capital. These loans provide up to $50,000 to help businesses start up or expand operations.
SBA loans, which are provided through banks and other approved lenders, are popular because they offer low interest rates and may have less stringent qualifications than some bank loans.Returning to the question of whether you have to pay back SBA loans: For the ones we’ve discussed so far, yes, you do. But there’s one other kind of SBA loan we haven’t talked about yet. That’s the Economic Injury Disaster Loan (EIDL).

What is an Economic Injury Disaster Loan?

Another of the SBA small business loans is the Economic Injury Disaster Loan (EIDL). This loan is offered to businesses in a disaster area that have been negatively impacted by a disaster.A disaster could be a major storm, flooding, or drought. Or, as we’ve seen recently, it could be a pandemic like COVID-19. The loan is available to businesses that aren’t able to pay their ordinary and necessary business expenses because of the qualifying disaster, and the funds provide working capital to help them resume business as usual. To qualify, businesses must not be able to get financing elsewhere.With the COVID-19 EIDL program, borrowers can receive up to $500,000 which can be used for working capital and normal expenses such as rent, utilities, and healthcare benefits.As of June 10, 2021, more than 3.79 million EIDL loans have been approved by the SBA, with funds totaling over $207 billion.

Economic Injury Disaster Advance Grants

We’re almost ready to answer your question: do you have to pay back SBA disaster loans?There’s something unique about the Economic Injury Disaster Loan (also known as EIDL), due to the COVID-19 pandemic.Early recipients of the EIDL were eligible for EIDL Advance funds, which don’t have to be repaid. There was a cap of $1,000 per employee for eligible applicants, up to $10,000. A total of $20 billion was given in these Advance grants.Recipients did not have to be approved for an EIDL loan to receive the Advance. Those that were receiving a loan had the amount of the Advance deducted from their total loan eligibility.

The EIDL Targeted and Supplemental Targeted Advances

With new legislation, there are now additional funds called Targeted EIDL Advances available. Businesses that received one of the previous Advances but for less than $10,000 have first priority for this round, which may provide the difference between what they first received and the $10,000 maximum.In addition, there is also a second Targeted Advance currently being offered through the EIDL program. This one is the Supplemental Targeted Advance.The Supplemental Targeted Advance provides a supplemental payment of $5,000 to the smallest and hardest-hit businesses. This payment also does not have to be repaid, and it is in addition to the $10,000 you might have gotten from the other two Advances.Even if you received funds under the original Advance, you may still qualify for one or both of these Targeted Advances. However, you can’t receive more than $15,000 total between the two Advance programs.To qualify for this Advance:  
  • Your business must be located in a low-income community as defined by IRS Code 45D(e). 
  • You must be able to prove that you suffered more than a 50% economic loss over eight weeks compared to the same period the previous year (the period you can consider starts March 2, 2020). 
  • Your business must have 10 or fewer employees. 
If you are a sole proprietor, independent contractor, and/or private nonprofit, you may qualify, too. However, if you are a farmer or rancher, you aren’t eligible for this Advance.You will need to provide your gross monthly revenue from January 2019 to today as part of your application.

Do I Have to Pay Back an SBA Disaster Relief Loan?

To summarize: If you received an Economic Injury Disaster Loan, you are required to pay it back in full. However, if you received your loan during the period when either of the Advance funds were offered and you were approved for either Advance, that portion does not have to be repaid.

EIDL Loan Terms

Whether or not you qualify for the current Advance, the EIDL program may be worth considering if your business qualifies and has suffered because of the coronavirus pandemic.These loans, which are available for up to $500,000, offer 30-year repayment terms at a fixed rate of 3.75% for businesses and 2.75% for nonprofits. There are no prepayment penalties. The first payment is deferred for 18 months, though interest accrues during the deferral period.For loans more than $25,000, collateral is required, and a personal guarantee is required for loans over $200,000.To qualify for an EIDL loan:
  • Your business must have suffered working capital losses because of the pandemic. 
  • Your business must have 500 or fewer employees. 
  • Cooperatives, agricultural enterprises, private nonprofits, faith-based organizations, sole proprietors, and independent contractors may be eligible.
  • Businesses involved in illegal activities, multi-level sales, speculation, investment, gambling, or lending are not eligible for the EIDL program.
If you already received EIDL funds in 2020, you may be eligible for an increase.

The Takeaway

Whether you qualified for one of the Advances or not, the Economic Injury Disaster Loan program is a great option for businesses that have been struggling because of COVID-19. And if you qualified for and received (or expect to receive) an Advance, so much the better. You have funds that you can use to keep your business running, and you won’t have the added expense of paying them back.Not eligible for an EIDL loan? You can still get a small business loan with Lantern by  SoFi. We’ll show you all the offers you’re eligible for in our network so you can choose the best financing option for your business.

Frequently Asked Questions

If I received PPP funds, can I still get an EIDL Loan?
What can I use EIDL funds for?
Can I still get an EIDL Advance?

About the Author

Susan Guillory

Susan Guillory

Susan Guillory is the president of Egg Marketing, a content marketing firm based in San Diego. She’s written several business books, and has been published on sites including Forbes, AllBusiness, and Cision. She enjoys writing about business and personal credit, financial strategies, loans, and credit cards. Follow her on Twitter @eggmarketing.
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